Chapter 15: Equity Markets

Question 1

Ordinary share

Answer 1

A share in the ownership of a company.

Equity shareholders have the right to receive all distributable profits of a company after the debtholders and preference shareholders have been paid.
They also have the right to attend and vote at AGMs.

Question 2

Advantages to holding listed rather than unlisted shares

Answer 2

• Generally they are more marketable and easier to value.

Question 3

Why do share analysts tend to analyse shares by industry?

Answer 3

• PRACTICALITY
  Practical for analysts to specialise by industry, and it adds a structure to the decision-making process.
  Most companies in an industry are affected by similar factors.
  The information about these companies tends to come from a common source and is presented in a similar way.

- Correlation of investment performance
The investment performance of companies within the same industry tend to be correlated since these companies:
- share the same resources,
- sell to the same markets and
- have similar financial structures

Question 4

What is a preference share?

Answer 4

This is a class of share that normally ranks ahead of ordinary shares. 
There is normally a set level of dividends rather than a share of residual profits.